Export

The demand for Ethiopian coffee is high in international markets due to the famous Arabica coffee type, which has its origin in the country (Minten et al., 2019; Minten et al., 2014; Site Visit 3; Tefera & Tefera, 2014). Ethiopia has a broader assortment than any other coffee producing country, with 24 official varieties of the Arabica coffee, which differ in terms of taste, size, color and quality (Garo et al., 2016; Site Visit 2, 3; UNIDO, 2014). Moreover, the country has a reputation for producing high quality coffee, which has the potential to boost sales (UNIDO, 2014). Since the majority of coffee producers do not use any agrochemicals on their land most Ethiopian coffee is organic (Interview 1, 3; Minten et al., 2019; Site Visit 2, 3;

Tefera & Tefera, 2014; UNIDO, 2014). This increases the attractiveness and competitive advantage of Ethiopian coffee in the international market, especially in terms of speciality coffee (Interview 3; Tefera & Tefera, 2014; UNIDO, 2014).

4.8.1 Export Channels

There are several actors that export coffee from Ethiopia, as shown in figure 13.

The first are private export companies operating in a private sector supply chain, the second is a chain including cooperatives and unions, and the third consists of

sell the commodity on behalf of the cooperatives (Gashaw et al., 2018; Nordic Approach, n.d.-b). It is estimated that cooperatives represented around 5-10% of the coffee exports between 2006 and 2013 (Abdissa, 2017; Minten et al., 2014;

Tröster, 2015). The majority, about 90%, of all coffee export is done through private exporting companies (Abdissa, 2017; Minten et al., 2014; Tefera & Tefera, 2014;

Tröster, 2015). Recently, some smallholder farmers and processors are also encouraged to export directly (FAS, 2019; Interview 1, 2, 3; Kornman, 2019;

Nordic Approach, n.d.-b; Site Visit 1).

Figure 13: This map is based on our findings. The nodes show the main activities of the coffee chain targeted towards the international market. The solid arrows represent direct linkages between activities, while the dashed arrows illustrate that there are omitted activities. The actors included on the solid arrows are involved in the processes between activities.

In 2012, 175 companies were registered as licensed exporters in the country, the majority of them private actors (Minten et al., 2014). Yet, only 14 of the companies handled the export of 50% of the total volume (Tröster, 2015). Only 23 companies exported a volume of more than 1% of the total (Abdissa, 2017). In other words, there has been a high market concentration among exporting companies operating in the coffee sector in Ethiopia, and big multinational organizations have dominated the market (Interview 1; Minten et al., 2014; UNIDO, 2014). It is challenging for small actors to compete with large multinational organizations (Interview 1).

The share of export directly from coffee producers was previously low, so transaction costs incurred as middlemen were involved in the export process (UNIDO, 2014). In some cases, intermediaries are necessary to ensure sustainable business, for example, if actors are illiterate and lack business skills (Interview 1).

In 2019, Ethiopia had “more than 400 coffee exporters, 395 coffee farmers who

directly export coffee, and over 30 import-export companies who export coffee”

(FAS, 2019, p. 4).

4.8.2 Export Coffee

Ethiopia mostly exports green coffee, which is neither roasted nor decaffeinated (Beshah et al., 2013; Tefera & Tefera, 2014; UNIDO, 2014). In 2008, the country started exporting other types of coffee, which had undergone secondary processing such as roasting and decaffeination (Beshah et al., 2013). As presented in the

‘Secondary Processing’ sector, the share of exported secondary processed coffee is low, which means that the value captured in Ethiopia is low.

Only around 30% of the exported coffee beans have undergone primary processing using the wet method (Minten et al., 2014; Mitiku et al., 2017a; Tamru & Minten, 2018; UNIDO, 2014). Cooperatives, commercial farms and Fairtrade coffee are more likely to export washed coffee compared to private traders (Minten et al., 2014). As washed coffee commonly obtains higher prices than unwashed coffee, value-adding is considered low amongst the exported coffee (Garo et al., 2016;

Minten et al., 2014; Tefera & Tefera, 2014; UNIDO, 2014).

The demand for washed and unwashed coffee varies across markets (Interview 4;

Minten et al., 2014). For instance, in the US and European countries, there is a higher demand for washed coffee, as it is considered to be clean and have a desirable flavor (Interview 4; Minten et al., 2014; Tefera & Tefera, 2014). However, in Japan and countries in the Middle East, consumers prefer unwashed coffee beans, as it is considered to be more natural and have a better taste (Interview 4; Minten et al., 2014; Tefera & Tefera, 2014).

Ethiopia has an interest for securing the ownership of speciality coffee, with names such as Harar, Yirgacheffe, and Sidama (Garo et al., 2016; Interview 3; Minten et al., 2014). The main reason is a desire to increase the value of branded Ethiopian coffee in the international market (Garo et al., 2016; Interview 3; Minten et al., 2014). There are significant premiums that can be obtained and thus, increased revenues can be reached from the export sector (Garo et al., 2016; Minten et al.,

willigness-to-pay for premium, high quality coffee by rich consumers and the demand for speciality and certified coffee is on the rise” (Minten et al., 2014, p. 1).

4.8.3 Quality Inspection

To ensure the quality of exported coffee, all coffee destined for export has to undergo two stages of quality inspection to determine whether the coffee is fit for export, that is, at regional ECX facilities and at the Control and Liquoring Unit (CLU) (Garo et al., 2016; Minten et al., 2017; Minten et al., 2014; Tamru, Minten,

& Swinnen, 2019; Tröster, 2015). At both stages, the coffee undergoes visual raw evaluation and cupping (Abdissa, 2017; Minten et al., 2014; Site Visit 1; Tefera &

Tefera, 2014; UNIDO, 2014). The ECX process has been previously discussed in the ‘Ethiopian Commodity Exchange’ section. After the initial grading at the ECX, only coffee that is considered fit for export is sent to the CLU to go through the second quality inspection (Tamru et al., 2019). However, some of the coffee sent to the CLU may be regarded as unfit by CLU standards (Tamru et al., 2019). It is estimated that of all the coffee given export quality by the ECX, 86% of the coffee is qualified for export after the inspection at the CLU (Tamru et al., 2019). This means that 14% of the coffee is rejected for export. Further, it is estimated that 93%

of the rejected coffee can be re-sold at the ECX, to be sold domestically, whereas the rest is estimated to be wasted (Tamru et al., 2019).

The coffee that is re-sold at the ECX obtains on average a 20% reduction in price than what it was initially traded for (Tamru et al., 2019). This means that coffee exporters on average face an additional cost related to quality inspections, as they are not allowed to export the rejected coffee (Tamru et al., 2019). As follows, many exporters chose to clean their coffee again after their first quality inspection, to ensure that it is considered fit for export by the CLU (Tamru et al., 2019).

Despite the competitive advantages of Ethiopian coffee, it is measured that Ethiopian coffee farmers obtain a lower share of the coffee export value compared to other large coffee producing countries (Minten et al., 2019). Ethiopian coffee farmers get a share of about 60% of the exporting price of coffee, while the shares are estimated to be 70% in Kenya, and 90% in Brazil (Minten et al., 2019).

Therefore, it is believed that the Ethiopian coffee sector is not performing to its full potential (Minten et al., 2019).

4.8.4 Discussion

We have identified the following main challenges and potential opportunities:

premium price potential in terms of the coffee’s quality, and cost of quality inspection. We discuss these in terms of sustainability and the triple bottom line.

Coffee Quality and Price Premiums

Our findings show that there is a potential price premium that can be obtained in the international market. We also found that speciality coffees can gain a price premium, so we assume that there is a potential within the Ethiopian coffee export sector within this segment. Depending on the export market the coffee is marketed towards, we found that price premiums can be obtained depending on the processing method. This can be linked to the economic dimension of sustainability as it is concerned with increased revenues and profits (Braccini & Margherita, 2019;

Christopher, 2016; Junior et al., 2018; Longoni & Cagliano, 2018; Shou et al., 2019). So, if exporting actors have coffee of the demanded quality, and apply the method that is desired at the particular market, they will potentially be able to improve their economic sustainability. Also, by enhancing their particular economic sustainability, they can improve the overall sustainability of the supply chain. This is confirmed in literature (Nichols et al., 2019). From this, we can find that increased supply chain value can impact the welfare and well-being of the actors involved in the chain, thereby positively impacting the social dimension of sustainability. The relation between welfare, well-being and social sustainability is supported in literature (Longoni & Cagliano, 2018; Nichols et al., 2019).

Since coffee quality is often determined by its origin, traceability has the potential to further increase the price premium that can be obtained for the good. This is confirmed in literature (FAS, 2019). Opportunities for increased traceability are further discussed in the ‘Ethiopian Commodity Exchange’ and ‘Coffee Certifications’ sections.

Cost of Quality Inspection

Our findings show that there are additional costs related to the quality inspection of coffee. These costs are both in terms of re-work that aims at increasing the quality of the beans before the last quality inspection, and the price reduction for coffee that fails the second quality inspection. Thus, we see that the quality inspections that coffee go through before potential export can impact the economic dimension negatively. Literature emphasizes the importance of cost reductions to achieve economic sustainability, both for specific actors and their activities, and for the overall supply chain (Longoni & Cagliano, 2018; Nichols et al., 2019). Therefore, these quality inspections can challenge economic sustainability of the coffee supply chain.

We also found that waste generation from the quality inspection stages can occur.

According to the literature, waste generation is not in line with the environmental dimension of sustainability (Christopher, 2016; Koberg & Longoni, 2019; Shou et al., 2019). Thus, the waste generated in the coffee supply chain at the stages leading up to export can harm the environmental sustainability of the chain. Waste can lead to potential revenue losses. Thus, not conforming with the economic dimension of the TBL (Braccini & Margherita, 2019; Shou et al., 2019).

The literature emphasizes the relationship and interconnection between the three dimensions of the TBL (Braccini & Margherita, 2019; Kumar & Goswami, 2019;

Laurell et al., 2019). Hence, we find that re-work and waste generation can impact the overall sustainability of the coffee supply chain.